The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.
By Steven Roll
Ohio enacted omnibus budget legislation changing the due date of CAT returns, eliminating the registration fee exemption for certain taxpayers, and imposing a penalty on taxpayers that try to pass on their CAT liability to customers. [H.B. 1, enacted 7/17/09]
The legislation also modifies several combined and consolidated reporting provisions and adds some exclusions to the CAT.
“Most of the changes to the CAT in this year's budget bill were ministerial or addressed some definitional problems in the original law,” said Thomas Zaino, a former Ohio tax commissioner who is now a partner with McDonald Hopkins LLC in Columbus, Ohio.
“I congratulate the governor and General Assembly for holding the line on taxes, including no increase or major changes to the CAT,” Zaino said.
“However, taxpayers must be diligent over the next two years because Ohio's budget situation is very tough. With a potential $6 to $7 billion shortfall, comparing the current biennium to the next biennium, I would not be surprised to see a serious effort to raise taxes in Ohio, including the CAT,” he added.
“The major characteristic that makes the CAT tolerable is its low rate—any increase in the CAT rate would make the CAT a bad tax,” Zaino said.
When fully phased in for the 2010 tax year, the rate for the CAT is 0.26 percent.
H.B. 1 changes the CAT return filing date, beginning with the 2010 calendar year. Until that time, returns must be filed within 40 days after the end of the quarterly or annual reporting period. Beginning with the 2010 calendar year, calendar year taxpayers must file and pay the tax by the 10th day of May following the end of each calendar year. For calendar quarter taxpayers, the due date is the 10th day of the second month after the end of each calendar quarter.
The legislation also clarifies the frequency by which taxpayers must file their CAT returns. Taxpayers with taxable gross receipts of less that $1 million must report and pay tax on a calendar year basis. Taxpayers that anticipate taxable gross receipts of more than $1 million must notify the Ohio Department of Taxation on their taxpayer's initial registration form, and file and pay on a quarterly basis.
H.B. 1 eliminates the exemption from the initial CAT registration fee that was available to certain taxpayers. The exemption applied to persons who began business after Nov. 30 in any year and persons that do not surpass $150,000 in taxable gross receipts as of Dec. 1.
The legislation also permits companies that registered for or paid the tax for 2005 or 2006 in error to have their registrations cancelled, and their tax payment refunded. To qualify for this provision a company must satisfy all of the following requirements:
• not been subject to the tax either because they did not have nexus with the state or did not have $150,000 of taxable gross receipts;
• failed to cancel their registration before May 10, 2006;
• cancelled registration before Feb. 10, 2007; and
• not been required to file returns or pay the minimum tax due on Feb. 9 in 2007, 2008, or 2009.
This provision took effect July 17.
H.B. 1 penalizes taxpayers that try to pass on CAT liability to their customers. After the first offense is detected, the Ohio Department of Taxation must notify the taxpayer to desist. It also may impose a $500 civil penalty. For each subsequent offense, the department must impose a $500 fine.
“For the first time, ODT has a real tool to penalize taxpayers that pass the CAT on to their customers as a separate line item on an invoice. Therefore, taxpayers need to be very careful,” Zaino said.
Combined, Consolidated Reporting
The legislation modifies consolidated and combined reporting provisions.
H.B. 1 permits groups of affiliated companies that have elected to be treated as a consolidated group to change the ownership test on which the initial election was made. A group that made its initial election on the basis of the 80 percent ownership test, may petition the department to change its election so that its consolidated elected taxpayer group is formed on the basis of the 50 percent ownership test.
To qualify for this treatment, the group must meet all of the following requirements:
• not have had any persons satisfying the 50 percent ownership test when the initial election was made;
• have one or more initial group members that, as a result of subsequently acquiring ownership interests in other entities, satisfy the 50 percent ownership test, but not the 80 percent ownership test;
• have requested the change in a written request to the department on or before the due date for filing the first return after the date of acquisition; and
• have not previously changed its election.
The legislation also defines “reporting person” for purposes of consolidated and combined returns. A “reporting person” is a person included in a consolidated elected taxpayer or combined taxpayer group and designated by the group to legally bind the group for all CAT filings and tax liabilities and to receive all CAT-related legal notices. The term also includes a separate taxpayer that is not a member of such a group for CAT reporting purposes.
Joint, Several Liability
However, H.B. 1 adds a provision (Ohio Rev. Code Ann. § 5751.014) specifying that although the reporting person will be assessed for a CAT liability, all the members of a consolidated taxpayer or a combined group are jointly and severally liable for any taxes, interest, or penalties.
The legislation specifies that the $150,000 exemption from the CAT applies to members of a group of companies affiliated through majority ownership that do not elect to be treated as a consolidated elected taxpayer group.
H.B. 1 also adds a number of exclusions to the CAT. Specifically, it excludes:
• payroll deductions by an employer to reimburse the employer for advances made on an employee's behalf to a third party;
• exchanges of products derived from crude oil (including motor fuel) between licensed motor fuel dealers or licensed permissive motor fuel dealers; and
• certain bad debts, cash discounts, returns and allowances, and accounts receivable.
Previously, bad debts, cash discounts, returns and allowances, and accounts receivable were deducted when calculating taxable gross receipts.
Unless noted otherwise, the legislation takes effect Oct. 16.
The full text of the measure is available on the internet at http://www.legislature.state.oh.us/BillText128/128_HB_1_EN_N.pdf.
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